The Acceleration Principle and the Theory of Investment: A Survey

Abstract

Over the past two decades the acceleration principle has played an extremely important part in the theory of investment. Its history, however, takes us back to the early years of this century2 ; and a considerable literature exists on the uses to it may be put and on the reliability of its explanation of the motives for investment in capital equipment.3 The main body of literature centres on the acceleration principle and the trade cycle. Here the popularity of the principle dates from the development of the multiplier and the realisation that neat models could be based on the interaction of these two theories. J. M. Clark drew attention to the possibilities of such models,4 but they were first fully developed by Lundberg5 and Harrod.6 Harrod's work, in particular, aroused considerable interest in the acceleration principle-or the as he called it-for in it the principle was brought to the very forefront of the analysis of the cycle. It is a relation, wrote Mr. Harrod, which has, indeed, been noted by learned writers often enough. Nonetheless I have the impression that not nearly